Saturday, January 8, 2011


Okay, here we go with the start of a new year.  What will 2011 hold?

For real estate, buyers and sellers are going to have to align their expectations with the new realities of our economy.  Buyers want value and/or quality, and that means steep discounts and/or turnkey homes.  Sellers have to understand the market of 2006 has no bearing on the market of 2011, and it would be wise to give some thought to the fact that over 50% of all listings placed in the Denver MLS last year never sold.

It's a price war and a beauty contest, which means another year of hard work and new challenges.

Here are five predictions for 2011:

1) On December 31, 2011, mortgage rates will be closer to 6% than 5%.  This isn't a bold or daring prediction - in fact, it might be classified as "hopeful".  The inflation grenade is in the room, in the form of $2 trillion in stimulus spending and a government which seems incapable of tackling the deficit.  Higher gas prices, higher commodity prices and higher interest rates are all in the cards.

2) Rents continue to rise and vacancies fall.  If there is any bounceback at all in the economy, the benefit will flow to landlords before homeowners.  Rents have been on a steady upward march in Denver for three years, and statewide vacancy rates (led by Fort Collins, at 2.8%) are lower than they have been in years.  With tighter lending standards and fears about the housing market, the pool of renters will continue to grow, and the cashflow numbers should get better and better for landlords and investors.

3) The rich get richer.  I'm predicting a good year for Wall Street... but another lousy year on Main Street.  Corporate takeovers are big right now, as healthy giants swallow up wobbly competitors, boosting market share and beefing up the bottom line while disposing of more and more workers.  I'm not saying I agree with it - but it's what I see.  A Wall Street rally will help some and hurt others.  People with money are going to be able to buy what they want at incredible prices.

4) The high end of the market won't get any better in 2011.  I've been sounding the alarm on the high end of the market for the past three years.  In a contracting economy where people are hunkering down and living more conservatively, big is out.  And what that means is that today, at price points above $1 million, there are 15 homes on the market for each one under contract.  That's murder on prices, and it's going to continue for a while longer.

5) It's a great time to buy real estate, if it's priced right.  Buyers really do have incredible leverage right now, with high inventories, motivated sellers, low rates and cash-flow opportunities for investors.  Rising rates will be a concern, but the rise in rates will be offset by an improvement in consumer confidence.  The bottom line is that if you think we're going to climb out of this malaise, the alignment of the stars is about as good now as it's going to get for purchasing homes at the median price or below in Colorado.

None of these are excessively outrageous predictions, but I'm not trying to shock anyone.  It's just important to know which way the tide is flowing if you plan to swim in the ocean, because the quality of your decisions is based on the quality of your information.

What are the wildcards for 2011?  Well, you never know what the government is going to do, or if there's going to be some new program or initiative that helps or hurts the market.  Government regulation of condo lending (via Fannie and Freddie) has killed the condo market.  A loosening of underwriting guidelines here could reinvigorate that sector of the market.

A strong Wall Street rally may help stabilize the higher end of the market, but a bad year on Wall Street could be devastating.  What Congress does or doesn't do with taxes, health care, the national debt and ongoing deficit spending could affect rates and prices.

Then, of course, you've got the uncertainties of war, terrorism, employment and inflation.  

The bottom line is that in 2011, just like in 2010, buyers need to be cautious and sellers need to be realistic.  And that means making decisions with your head and not your heart.